30-Year Bond Auction, Powell Remarks Lead To Pullback On Wall Street

Stocks showed a lack of direction for much of morning trading on Thursday but came under considerable pressure in the afternoon. The major averages all showed notable moves to the downside, with the Nasdaq and the S&P 500 snapping their longest winning streaks in two years.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Nasdaq slumped 128.97 points or 0.9 percent to 13,521.45, the S&P 500 slid 35.43 points or 0.8 percent to 4,347.35 and the Dow fell 220.33 points or 0.7 percent to 33,891.94.

Stocks showed a notable drop in early afternoon trading after the Treasury Department revealed this month’s auction of $24 billion worth of thirty-year bonds attracted below average demand, triggering a surge in treasury yields.

The thirty-year bond auction drew a high yield of 4.769 percent and a bid-to-cover ratio of 2.24, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.38.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

The markets saw further downside as Federal Reserve Chair Jerome Powell addressed the outlook for U.S. monetary policy, saying the central bank “will not hesitate” to resume raising interest rates if it becomes appropriate.

Participating in a policy panel at the 24th Jacques Polak Annual Research Conference in Washington, D.C., Powell acknowledged that U.S. inflation has slowed over the past year but pointed out it remains well above the Fed’s 2 percent target.

“My colleagues and I are gratified by this progress but expect that the process of getting inflation sustainably down to 2 percent has a long way to go,” Powell said.

Powell also said the Fed is “not confident” a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time has been achieved.

“We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes,” Powell said. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”

He added, “We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening.”

Powell indicated the Fed will make future monetary policy decisions “meeting by meeting” based on the totality of incoming data and the implications for the outlook for economic activity and inflation.

Sector News

Airline stocks moved sharply lower over the course of the session, resulting in a 2.5 percent nosedive by the NYSE Arca Airline Index.

Substantial weakness was also visible among pharmaceutical stocks, as reflected by the 2.5 percent slump by the NYSE Pharmaceutical Index.

Biotechnology stocks also saw considerable weakness on the day, dragging the NYSE Arca Biotechnology Index down by 2.4 percent.

Healthcare, commercial real estate and banking stocks also moved notably lower, while some strength remained visible among networking stocks.

Shares of Infinera (INFN) soared by 14.6 percent after the telecom equipment company raised its third quarter guidance.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan’s Nikkei 225 Index surged by 1.5 percent, while South Korea’s Kospi edged up by 0.2 percent.

The major European markets also moved to the upside on the day. While the French CAC 40 Index jumped by 1.1 percent, the German DAX Index and the U.K.’s FTSE 100 Index advanced by 0.8 percent and 0.7 percent, respectively.

In the bond market, treasuries pulled back sharply after moving notably higher over the two previous sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, surged 10.7 basis points to 4.630 percent.

Looking Ahead

Trading on Friday may be impacted by reaction to a report on consumer sentiment in the month of November, which includes readings on consumers’ inflation expectations.

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